Sixty-nine percent of pension plans across Europe expect governments will take aggressive action to close the retirement savings gap in the next five years, according to a survey commissioned by State Street and conducted by the Economist Intelligence Unit.
Such measures would include compulsory saving mechanisms, such as the United Kingdom's auto-enrollment and new financial incentives to save.
Seventy-seven percent of European pensions are feeling optimistic that contribution rates will increase over the next five years.
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"The whole issue of funding will affect strategy. Contributions will have to increase to fill the gap, returns will have to improve or benefits will have to fall and there are not any other possibilities," said Raymond Haines, head of European strategy and research, Investment Solutions Group at State Street Global Advisors. "I feel that people are still looking for improvements in returns to fill gaps when for the past ten years this approach hasn't worked."
Economist Intelligence Unit surveyed 150 European pension schemes for this research. It found that 75 percent of respondents saying that persistent funding challenges will accelerate the closure of many defined benefit plans. Many will transition to defined contribution plans.
Those surveyed do believe that overall funding levels will improve, with 65 percent expressing optimism in this regard.
"It's clear that across Europe there is a strong belief that change is gathering pace in the pensions industry, and there will be plenty of innovation to come. There is recognition that governments are going to have to become more involved," said Haines.
Other key findings include:
- 88 percent of respondents say, and nearly four-fifths (79 percent) of plans predict transparency will improve and enable investors to make more informed decisions.
- 68 percent of plans believe that investment decisions will become more complex
- 65 percent of respondents feel their data enables them to fulfill their regulatory requirements
- Less than half (42 percent) feel that their data gives them a good understanding of their total investment costs.
The State Street European Pension Study was conducted by the Economist Intelligence Unit in October 2012. Responses were received from DB and DC plans in Germany, Italy, Netherlands, Switzerland, UK and the Nordics.
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